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Systematics of Advanced Capital Market Models based on Empirical Research

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  • Gerhard Schroeder

    (Private Research)

Abstract

The complex blue prints of ODE and PDE based capital market models remain closed to systematic review. Particularly, when some authors of mathematical models can not or may not offer explicit solutions. Artificially generated 'cloned' courses can demonstrate the impact of various types of stochastic volatility in these cases. The Black and Scholes formula has the disadvantage that its key variable, the (future) volatility. is not known. In fact, what is known is that the volatility is volatile itself and the assumption of a stable volatility is violated. The socalled advanced models try to model the stochastic volatility. However, this still implies assumptions how a particular volatility may (or may not) develope until a given point of time. An analysis of key indexes shows stochastic properties difficult to cover in mathematical models yet being still interesting.

Suggested Citation

  • Gerhard Schroeder, 2005. "Systematics of Advanced Capital Market Models based on Empirical Research," International Finance 0512003, EconWPA.
  • Handle: RePEc:wpa:wuwpif:0512003
    Note: Type of Document - pdf; pages: 28. First Systematics of advanced Capital Market Models
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    File URL: http://econwpa.repec.org/eps/if/papers/0512/0512003.pdf
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    References listed on IDEAS

    as
    1. Bakshi, Gurdip & Cao, Charles & Chen, Zhiwu, 2000. "Do Call Prices and the Underlying Stock Always Move in the Same Direction?," Review of Financial Studies, Society for Financial Studies, vol. 13(3), pages 549-584.
    2. Bollerslev, Tim & Engle, Robert F. & Nelson, Daniel B., 1986. "Arch models," Handbook of Econometrics,in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 49, pages 2959-3038 Elsevier.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Model Systematics; Black Scholes; fair value; option pricing; mispricing; artificially generated 'cloned' quotations; stochastic volalatility; mean reversion; test methods; testing capital market models; experimental economical research; ODE; PDE; hyperbolic; index particularities;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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